Netflix (NFLX 4.10%) just got a little bit less expensive for millions of subscribers.

The streaming leader cut prices in several markets, focusing on emerging markets across Latin America, Eastern Europe, the Middle East, Africa, and the Asia-Pacific region. The move comes at a time when competitors like Walt Disney are raising their streaming prices in some markets. A Netflix spokesperson acknowledged competition as a factor in a statement to The Wall Street Journal. "We know members have never had more choices when it comes to entertainment," she said.

But investors shouldn't fear a massive drop in revenue for Netflix with the changes. Nor is it a desperate attempt to juice subscribers numbers. Management's much more focused on revenue growth, and the pricing changes give it the best opportunity to grow revenue in those markets.

Big changes at Netflix

Netflix is making a couple of big changes: It introduced an ad-supported tier in some markets late last year, and it'll start enforcing its policy against password-sharing.

The two strategies are generally thought to work in concert with one another. The idea is that if a viewer finds themselves unable to access a sharer's account, they're more likely to sign up for the service at a lower price point than what was previously available, even if it means watching some ads.

But ad-supported viewing isn't available in every region where Netflix operates and setting up ad-supported viewing in a lot of markets can take a while. So, the price cuts in some regions may be an effort to mitigate the expected increase in churn from cracking down on password-sharing. In fact, Netflix may have managed the pricing so subscribers can effectively continue sharing passwords at the same price, while those not sharing passwords get a price cut.

As Netflix cracks down on password-sharing, the price cuts in these regions should produce a revenue-neutral to revenue-positive impact for the company, even if average revenue per user takes a hit.

India as a case study

The price cuts echo a move Netflix made in India at the end of 2021. That move turned out really well for Netflix.

During the company's first-quarter earnings call last year, COO (now co-CEO) Greg Peters said the price cuts resulted in a bump in subscribers, and should help move the company toward long-term revenue maximization. Indeed, Asia Pacific was, by far, the company's fastest-growing region in terms of subscribers. However, foreign-exchange-neutral revenue per user fell throughout 2022 while it increased in other regions.

The move in India wasn't made in a vacuum with some basic math to improve revenue. Outside forces may have also played a role. Specifically, Disney launched Disney+ Hotstar in 2020, and it was a massive success. The price point severely undercut Netflix, and it was signing up millions of subscribers. (Granted, it had a built-in audience from its previous life as Hotstar).

As competition increases in other markets, with some services undercutting Netflix's high prices, it makes sense for Netflix to lower prices in order to stay competitive and maximize revenue.

It's not some subscriber grab

Netflix isn't desperate for subscribers, and management's focus has shifted to producing double-digit revenue growth for investors.

To be sure, the price cuts will impact about 10 million existing subscribers, less than 5% of Netflix's existing subscriber base. Even if their average revenue gets cut in half, that's a negative impact of less than 3% on Netflix's top line. That'll likely be made up by an increase in subscribers and the pricing for password-sharing.

Importantly, the move sets up Netflix to build out the runway for revenue growth even longer. The ability to attract more subscribers at a lower price point is a major selling point for investors on the ad-supported tier. The same logic makes sense in emerging markets where spending power for most consumers is considerably lower. As that spending power increases and Netflix has a chance to prove the value it can provide, there's room to increase pricing again and grow revenue.

Netflix may be taking a small step backward in those regions so it can take two (or three or four) steps forward.